South Korea Orders Residents to Report Overseas Crypto Holdings

South Korea's National Tax Service has clarified that residents holding cryptocurrencies on foreign exchanges must declare those assets under the country's foreign-account disclosure rules, even if the exchange is bankrupt or access to funds is blocked. This means that individuals who lose control over their assets due to an exchange's failure still need to comply with disclosure standards as long as their accounts meet the required thresholds.

The ruling was issued after a resident asked whether they needed to declare digital assets they couldn't access, which had been maintained on a platform before its collapse in November 2022. The National Tax Service stated that accounts opened with a foreign virtual-asset service provider remain subject to reporting obligations, even following the provider's bankruptcy.

The disclosure requirements apply to residents and domestic companies with overseas financial accounts, including those holding digital assets, if their combined balance exceeds 500 million won (approximately $350,000) at the end of any given month during the year. Filings must include the name of the foreign institution, details of the account, and the reported balance.

The latest clarification extends these requirements, confirming that bankruptcy of an exchange does not nullify the disclosure obligation, even if account holders can no longer withdraw or trade their assets. This ruling may pose a challenge for many Koreans in tracking the actual value of inaccessible digital assets, as the account interface of a failed exchange may continue to show a user's pre-bankruptcy token balance.